Redington's Dan Mikulskis on competition in the consultant market and why open debate is necessary for continued success.
In the defined benefits space in particular, moves towards greater transparency, sector competition and value for money have taken centre stage.
There is not currently a competition issue in the investment consultant market at the point of selection
The good news is that regulators, particularly the Financial Conduct Authority and the Pensions Regulator, are keen to hear the views of those at the coalface.
The industry is moving broadly in the right direction, particularly where competition is concerned. Our view is there is not currently a competition issue in the investment consultant market at the point of selection. The market has changed in recent years: competition between a number of firms, innovation and price tension are all features, and there is strong data underpinning this.
An advisory or fiduciary management approach can deliver good outcomes for pension funds, and competition between the two approaches is healthy.
Given the conflicts and incentives that can exist within a fiduciary model, this carries an increased risk of clients being channelled into suboptimal solutions or not achieving the best value for money. With this in mind, there may be certain constraints on competition at the fiduciary end.
Challenge jargon and status quo
However, the continued success of improving member outcomes depends very much on continuing to cultivate a mindset of openness. An accusation sometimes levelled at the industry is that we can appear to be a closed shop.
FCA wants to strengthen duty on managers and consultants
About £109bn of investor assets is held by managers who charge high fees but do not offer significant variation from an index-tracking strategy, the Financial Conduct Authority’s interim report on competition in the asset management market has found.
Despite our best efforts, jargon and maintaining the status quo can impede progress and make the process of saving for retirement more onerous for members than it already is. It is essential that we challenge and work to overcome these perceptions, and consultancies from the biggest to the smallest will be judged on their actions rather than their words.
Openness and continued debate therefore need to be very much the order of the day. As an industry, we are fortunate to have a great deal of diversity.
We need to come together as a collective voice, but one that reflects the diversity of the members we serve. There is much the industry can do to improve its processes.
Reviews of this sort offer us the chance to regularly appraise the industry and constantly look to improve performance. But its continued success depends on a diverse range of views from firms of all shapes and sizes.
Dan Mikulskis is head of defined benefits at consultancy Redington
